Orchestras Don't Exist to Make Money

For the past week, I've been inundated with comments, thoughts, discussions, and vitriol regarding the San Francisco Orchestra Musicians' strike. There have been blogs and articles posted all over, and I'll link to a few of them during the course of this post.

Many of the conversations have been fruitful, but there are some major sticking points that are driving me absolutely crazy. It reached a point yesterday when I had to call my mom and ask if I was crazy. BTW, if you missed it, my mom has an MBA and has worked in the non-profit sector as an employee, board member, and grant writer/business consultant for a long time...As in she was pregnant with me and working for Milwaukee Opera as a costumer...

So, I had to call her and ask her about the differences between a for-profit and a non-profit structured organization. Why? Because I kept seeing things like this "American Symphonies Spend More Than They Earn" , "It's not clear that they're willing to be as tough minded about costs as directors in the private sector," and "San Francisco and Chicago aren't alone in their financial struggles..."

There are many things inherently wrong with these statements.

The big question: do non-profits exist to make money?

   This is an interesting question, and one people really need to look at. First off, generally speaking, a non-profit cannot operate at a large surplus of three times the operating budget for the past year (note, you may have to do a little searching on this. the BBB site wanted current location). Most organizations aren't sitting on three years worth of surplus in a year. In the case of San Fran, it'd be amazing, to make a whopping $300 million surplus. However, they were, in fact, operating at a surplus in 2011, a surplus of a healthy $14million. Now, this might seem like a blip agains their operating budget of $86million from 2011, but it's darn good. But that's not what the BBB uses to allow keep up a non-profit's accreditation. It's three years of operating budgest IN RESERVES for a given year...

Wait, what's the endowment at for the San Francisco Symphony again? at the end of 2011, it was at $262.68 Million. Against the operating cost of $72.15 Million...or roughly 3.64 TIMES the operating budget, for the year 2011, in the endowment. Hey, guess what, that means, according to the BBB practices, you made too much money.

    But this doesn't completely answer the question: Do non-profits exist to make money? There are arguments, but most say "no, not really." This doesn't meant they shouldn't make any money, or grow the endowment. Here's a good post at philanthropy.com going over the importance of operating at a small surplus .

    There's another big point in accreditation for non-profits. "Spend at least 65% of total expenses on program funding." (also BBB). What's program funding? That's funding that is directly used to further the mission statement. The short one from San Francisco is:

The San Francisco Symphony sets the highest possible standard for excellence in musical performance at home and around the world, enriches, serves, and shapes cultural life throughout the spectrum of the Bay area communities, maintains financial stability and gains public recognition as means of ensuring its ability to fulfill this mission.

That means 65% of the expenses must be used for the purpose of this mission. How does a symphony set the highest possible standard for excellence? They hire the best musicians in the world. How do they do that? Competitive pay and benefits. If you want to compare to a for profit corporation, think of what it takes to lure someone to a new job. For white collar workers, this is where benefits came from in the 50s and 60s- it was a way to attract the best workers to your corporation.

I'm starting to see a major case against the San Francisco Symphony's board right now. They're not acting on the first point of their mission by trying to hide behind the ending statement "maintain financial stability." But, according to BBB regulations, they're beyond financially stable. In fact, they need to spend money. Which they did!

Wait wait wait...hold up...The San Francisco Orchestra board raised spending $11 million last year from 2011. They needed to. They HAD to raise spending. Why? Because they also brought in a whopping $145+ Million for their Second Century campaign, which has been going for the last couple years. Because non-profits CAN work at surplus, but not a large surplus, especially for an extended period of time, they had to raise the budget.

But where did that $11 million of spending go? It wasn't to the musicians. Musicians are currently being asked to pay more in their benefits, and not only not take a raise, but face a possible cut.

HOLD THE PHONE

An organization, that has gone past the allotted surplus amount setup by the BBB, increases spending, mainly on education programs (BRAVO!). They bring in a huge amount, increasing their endowment, now, to almost 4 times their yearly budget, far passing what the BBB allows for non-profit accreditation. And now, in contract discussions with they ask for cuts.

This is a board not acting in the best interest of the mission statement. This is a board made up of two high ranking officers (Current and former) of Wells Fargo bank. And they're treating it like a for-profit. Bonuses were handed out to administration. Hey, guess what, you're spending money NOT ON YOUR MISSION BY DOING THAT! It's not going to a program, it's not going to create the best musical product. For that you need musicians. You want to give money? Keep expanding the education and outreach (which has grown huge amounts thanks to MTT's leadership).

What's this amount to? This is not a symphony fighting for it's life. We cannot compare it to Indianapolis, Atlanta, Detroit, companies where their endowments were shrinking and they were operating at perennial deficits. Yes, things need to change in the total workings of orchestras, I agree. Some blogs attack the highest paid individuals  (the second heading. And, to be fair, this blog has many great points, but doesn't seem to understand inner workings of large non-profits. but then, most people don't. I'm not an expert either). This is horrible business. How is cutting the highest paid individuals going to help the lowest paid? It's not. In fact, it's going to hurt lower musicians. You now have nowhere to grow, no possible incentive to make a great orchestra. Not that orchestral musicians need incentive to make amazing music.

This is just one of the many points that have come up. I may try and hit more, but this one just bugged the crap out of me. And I still barely scratched the surface of what's happening. So, like I said, here are a host of links.

A great blog that breaks down some great points, written by Prof. Ellen Rosewall, professor of arts management, UW-Green Bay (shoutout to the frozen north, and all my friends in Lawrence, Eau-Clair, etc!).

Kevin Case, of Case Arts Law has become a bit of a personal hero of mine lately. Do yourself a favor, start at the top, and go through all his articles. This guy is a the best kind of beast- Former concertmaster of Memphis, played with Chicago Lyric and Chicago Symphony, then went to law school. Mr. Case, you're an inspiration to me!